The Federal Reserve's key inflation measure showed a slowdown last month, while consumer spending picked up. Despite these developments, the consensus on Wall Street remains unchanged, with the stock market continuing its record-setting pace in the first quarter.
The core personal consumption expenditures price index, excluding food and energy, increased by 0.3% from the previous month. This marks a deceleration from January's robust figures. Released during the Good Friday holiday when markets were closed, this data aligns with the perspective that inflation, although cooling, persists above the Federal Reserve's comfort level. This scenario constrains the potential for interest rate reductions within the year. However, the economic resilience post the Fed's recent rate hikes reassures strategists.
Steve Sosnick, Interactive Brokers' chief strategist, believes the recent data won't alter the current narrative surrounding the Federal Reserve or the market. Following the release, swaps traders slightly reduced their bets on a rate cut by the Fed as early as June, a sentiment echoed by Fed Governor Christopher Waller, who advocated for a cautious approach to adjusting interest rates based on recent economic indicators.
Despite a significant rise in the S&P 500, up 10% in the first three months and setting new records 22 times this year, concerns about the market overheating persist. The recent data also highlighted a worrying trend of consumers spending more while earning less, potentially unsustainable in the long run.
Experts across Wall Street share mixed views on the implications of the latest inflation and spending figures. While some see it as unlikely to significantly shift the narrative around inflation or the Federal Reserve's actions, others believe it reinforces a cautious stance on rate adjustments. The consensus is that incoming data, rather than forecasts, will guide future interest rate decisions.
As the market anticipates the Federal Reserve's next moves, the focus remains on the balance between curbing inflation and supporting economic growth, with the latest data offering a nuanced view of the challenges ahead.
